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Monday Was ‘Just Kidding’ Moment as Asia Stocks Sink Further

(Bloomberg) -- Monday’s stock-market respite was short-lived and the pendulum has swung yet again. On Tuesday, market watchers saw slumps of 1-3 percent for almost every single major benchmark gauge in Asia.

Despite added support from officials, Chinese stocks have returned to their losing ways after a two-day rally of almost 7 percent. Japan’s Topix index fell 2.6 percent, and the MSCI Asia Pacific Index is less than a point away from bear-market territory. U.S. stock-index futures have been hitting fresh lows as well.

And there’s a plethora of reasons for this: geopolitical tensions, sell-side bulls wavering on the U.S. stock market, a possible slowdown in earnings and economic growth are all weighing on investor sentiment. Globally, analysts have cut profit estimates, with a Citigroup Inc. gauge of earnings revisions hitting its lowest level in more than two years.

Quick recap:

U.S. President Donald Trump said he’s still not satisfied with Saudi Arabia’s explanation of dissident journalist Jamal Khashoggi’s death as U.S. Treasury Secretary Steven Mnuchin met with Crown Prince Mohammed bin Salman in Riyadh.

Morgan Stanley and Goldman Sachs said the U.S. stock rally is starting to wobble as the market struggles to come to terms with what many see as a new regime of higher bond yields, slowing profit growths and persistent political tensions at home and abroad.

Bank of America Merrill Lynch said the two-day jump in Chinese stocks is a sentiment-driven, short-term rebound that is unlikely to be sustained.

The greenback held its gain, trading around the highest level in two months.

These are now moves that investors are accustomed to but as the rout deepens, it begs the question -- are bulls starting to get bearish? The 10-day historical volatility for the MSCI Asia Pacific Index is less than a point away from its level during the global sell-off in February.

The regional gauge sank as much as 2.3 percent, surpassing this year’s bottom and heading for its lowest close since May 2017. It has fallen 12 days out of 17 in October, set to become the month with the most down days since September 2014.

For Paul Kitney, the chief strategist at Daiwa Capital Markets Hong Kong Ltd., the U.S. dollar breakout against all major currencies could be a trigger, and that will be an overhang for Asia until the trade dispute ends. Margaret Yang at CMC Markets Singapore Pte. says the regional sell-off is largely due to liquidity reasons: “When there’s no money here there’s no support for the market, and when funds are flowing back to U.S. dollar dominated assets, nobody can save the market from going down.”

Indonesia’s stock market, while being dragged down by the rest of the region, was one of the best performers Tuesday: down a mere 0.7 percent. The nation’s financial and property stocks are the ones to watch after the central bank left rates unchanged, as expected.